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The Consequeces of Artificially Low Prices

By Chris | December 10, 2008

Fights are breaking out at Chuck E. Cheese’s (CEC) across the country. From the WSJ:

“In Brookfield, Wis., no restaurant has triggered more calls to the police department since last year than Chuck E. Cheese’s…. [I]n some cities, law-enforcement officials say the number of disruptions at their local outlet is far higher than at nearby restaurants, and even many bars.”

It appears that many fights breakout over the use of popular games:

CEC is considering systemwide signs at popular games such a machine that draws digital pictures of customers to let people know there may be a time or token limit. Making the machines more expensive to use is another option, but Mr. Huston says that is “inconsistent with our value message.”

How is setting a market-clearing price inconsistent with Chuck E. Cheese’s values? While I have not been to Chuck E. Cheese’s, I have visited similar restaurants as a kid. CEC sells a lot of food alcohol. The marginal cost of alcohol is quite high and the marginal cost of giving someone an extra token is very small. CEC has an incentive to keep the prices on its games low so kids will keep playing games while their parents spend money on food and alcohol.

Allocating scarce game time through lines and time limits may also be another way of peak load pricing. Games are effectively cheaper when no one else is there to get in your way. This encourages customers to come on off days. The problem with this pricing scheme is that the lines and congestion can lead to some major altercations between patrons. Consider this example:

Flint, Mich.: Jan. 26, 2008
Flint Township police responded to a call about a large fight at Chuck E. Cheese’s that involved as many as 85 people, according to police reports. A fight inside the restaurant between three females erupted, pepper gas was sprayed and people flooded outside the restaurant into the back parking lot.

Topics: Economics | No Comments »